4th Quarter Equities
The basic story of the stock market in 2025 was its upward momentum The one rough spot followed the tariff announcements on April 2. The market plunged 12 percent within a week. The bond market also reacted badly. President Trump was soon modifying and delaying the sweeping policy he first announced. This tariff delay and enthusiasm for technology stocks pushed the S&P 500 past previous record highs in every month from May through October. The rally did slow toward the end of the year.
On December 31, the S&P 500 was ahead at 1.62% for the fourth quarter and 16.45% for the full year. The Nasdaq Composite index was up 2.64% for the quarter and 20.57% for the year. The Dow Jones Industrial Average gained 2.51% for the quarter and 12.98% for the year. The Russell 2000 index of small stocks went up 2.44% for the quarter and 12.83% for the year. Small cap stocks peaked at their first record closing high in four years.
Given the economic outlook, forecasts for the stock market might reasonably be more restrained. But the driving force for the market is corporate profits. The consensus view is that earnings per share of the S&P 500 will be in the 12%-15% range. Some analysts see positive earnings growth in all 16 sectors for the first time since 2018. Increased sophistication in corporate pricing strategies and use of AI technology are big contributors to profit growth. Higher earnings offset some of the concern about rich stock valuations.
At Hudson Advisors, we will be participants not contrarians to stock market optimism. We are encouraged by the outlook for broadening sector growth and opportunities for stocks that have been undervalued in recent years.
All that said, we will be highly attuned to the possibility of unpredicted geo-political events that could quickly squash all this stock market good cheer.
